Tencent’s profits are soaring. But investors are worried about a crackdown by China
Tencent just posted a huge jump in profits, but that won’t stop investors from fretting over whether it’ll become the next big target of a clampdown by regulators on tech companies in China.
The Chinese tech giant beat estimates Wednesday with earnings for the quarter ended December. Revenue surged 26% to 133.7 billion yuan ($20.5 billion), while profit climbed as much as 175% to 59 billion yuan ($9 billion) compared to the same time the previous year.
“While 2020 was a year of unprecedented challenges, solid results across all our businesses testify to our focus on user value, technology innovation and business sustainability,” Tencent Chairman and CEO Ma Huateng, who is also known as Pony Ma, said in a statement.
But there’s a risk that the results will be overshadowed by concerns of a growing government crackdown on Chinese tech companies.
Earlier on Wednesday, Tencent’s stock dropped about 1.5% in Hong Kong after Reuters reported that Ma had recently met with antitrust officials. Shares later pulled back to close down slightly.
According to Reuters, which cited three unidentified sources, the meeting was requested by Tencent, and took place earlier this month with China’s competition watchdog, the State Administration for Market Regulation (SAMR).
In a statement Wednesday, Tencent stressed that the gathering “was a voluntary meeting.”
“Tencent has had meetings with regulators on a regular basis, and this was a regular meeting,” it said. “We discussed a broad range of topics, mainly focused on fostering innovation and creating a healthy environment for industry evolution. Tencent has always and will continue to conduct our operations in compliance with relevant laws and regulations.”
SAMR did not immediately respond to a request for comment.
According to two sources who spoke to Reuters, Chinese officials are looking into potential monopolistic practices by WeChat, Tencent’s popular social networking app. Regulators are specifically concerned that the platform may have “squashed fair competition and squeezed smaller rivals,” the news agency reported.
Aside from its ownership of WeChat, Tencent is known for its dominance in online payments in the country through its WeChat Pay platform, as well as its popular mobile games.
But scrutiny of the firm has soared recently, particularly after the treatment of China’s other top tech giant, Alibaba.
Late last year, Alibaba’s financial technology affiliate, Ant Group, was forced to shelve a record-breaking $37 billion IPO after co-founder Jack Ma landed in hot water with regulators.
Ant, which owns another popular digital payments app, Alipay, has huge interests in online investing, insurance and consumer lending, and has since been ordered to overhaul its business.
Regulators are now said to be considering requiring Tencent to restructure its fintech arm, Bloomberg News has reported, citing unnamed sources. Tencent did not immediately respond to a request for comment on the matter.
Martin Lau, Tencent’s president, said on a call with Wall Street analysts Wednesday that the company didn’t push the boundaries of China’s regulations.
“We are very self-restrained in terms of monetization and our business practices,” Lau said. “I think we sometimes get a criticism on being too much in self-control. But that’s something that we’ll continue to do, and we think it’s going to be beneficial for us in the current environment.”
— CNN’s Beijing bureau and Laura He contributed to this report.
